Futures Point To A Lower Open
INTEREST RATES
The Treasury market certainly made it difficult
to trade the coming payroll report, as prices managed to slide down into new low
ground late in the session Thursday. It has been a pattern for the bonds to come
into the payroll report slightly oversold and needing a big number and that is
certainly the case today. In fact, the market is really primed to see a big
number with most expectations centered on the 170,000 to 180,000 non farm
payroll gain level.
STOCK INDICES
It would be a neat trick for the US stock market
to weave its way through the reports today without finding more rationalization
for selling. The bear camp pretty much has control over sentiment with the trade
convinced that an ultra strong payroll report is negative, because that means
higher rates. Even after the Fed took pains to lay out a slow and gradual
tightening strategy, the trade is suggesting that a strong payroll report today
will result in a 50 basis point hike in the month of June.
DOW
We now suspect that the June Dow will see a low somewhere between 10,200 and
10,072. You might buy the Dow higher than that and be right, but you might also
have to ride the position through significant adversity. Even if the payrolls
are ultra strong, we think that could result in a return to the late March
consolidation lows.
S&P
The June S&P had all the makings of a classical bottoming yesterday but just
failed to close strong enough to complete the signal. In fact the market needed
to close above 1113.50 to have a classical reversal. We now suspect that the
June contract will make a bottom around 1101 but that traders will have to risk
the position to 1095. Every time the market gets into a bottoming posture, a
fresh negative surfaces to knock the wind out of the bull camp. Those that are
afraid they will miss the bottom by waiting for 1101, could buy a June S&P 1130
call, or buy a June E-mini 1130 call for 1300 today and then buy a second 1130
e-mini call for 1000 or better, later today or early next week.
^next^
FOREIGN EXCHANGE
US DOLLAR
Surprisingly the Dollar has managed to overcome some
of the political baggage and continue to grind away from the recent lows. While
it would seem like the US stock market is convinced that higher US rates are
ahead, that is not the case in the currency markets. Certainly the Dollar has
bounced off the early May low because of the prospects for higher rates, but the
proof will have to be in the pudding, as the world really prefers to beat up on
the Dollar. In fact, we think that the growing political baggage is something
that will hold the Dollar back, even in the face of ultra strong growth. Given
the prisoner abuse we see OPEC becoming more hard line than ever, with energy
prices possibly reaching unheard of levels. With the US officially asking OPEC
for more oil, it is clear that the US Administration is worried about
significantly higher prices. News about ethnic violence in Nigeria simply means
that another critical oil source is threatened. We think the US Dollar is the
most vulnerable to the current equation and only an above expectation reading
from the payrolls, will leave the Dollar in the upward pattern of the last two
sessions. Heavy resistance is seen in the June Dollar at 90.55. Those that got
long the Dollar at 89.72 should use a break even stop today!
EURO
For the Euro to soar, the US must miss the mark on
the payrolls. In fact, a number below 160,000 might be enough to give the Euro a
lift back to the recent highs. A very critical failure takes place in the Euro
this morning at 119.98. More negative numbers from Germany this morning, serve
to undermine the euro ahead of the US figures and that could actually add an
element of weakness to the Euro following the US readings. We would buy a put in
the Euro but would not be a seller of futures. German March Construction output
was down 10.2%, manufacturing was down 1.7%!
YEN
Overnight the Nikkei fell sharply again and we have
to wonder if the Chinese situation and soaring energy prices isn’t beginning to
put a negative wrinkle in the Japanese recovery track. A strong US number this
morning, puts the yen into a new low for the move.
SWISS
The Swiss has partially rejected some of the
overnight weakness, as if the currency is poised to return to the recent highs.
We think the Swiss has a better chance to rally than the Euro, as it doesn’t
have the negative drag of poor numbers. The Swiss might end up being the favored
currency today if US numbers are soft.
BRITISH POUND
We think traders can be long the Pound today using a
stop down at 177.70 and an objective of 182.20. In fact, traders might consider
buying 2 June Pound 176 puts and being long the futures.
CANADIAN DOLLAR
The Canadian jobless rate declined by.2% and jobs
rose by 49,600 and that helped the Canadian recoil away from the overnight lows.
However, we still get the sense that the Canadian bulls are swimming against the
tide! If you think there is a low coming, buy a June Canadian at 72.50 and buy a
72 put for 50.
METALS
OVERNIGHT
London A.M. Gold Fix $386.85 -$5.15 LME
COPPER STOCKS 148,500 mt tons -1,225 tns COMEX Gold stocks 4.269 ml +50,076 oz
Comex Silver stocks 122.5 ml +97,477 oz
GOLD
The precious metals markets failed Thursday in a
fashion that suggests another layer of spec and fund longs were giving up on the
market. Certainly the prospect that Chinese commodity demand could be hit by new
credit tightening rules is discouraging, but with the Dollar mounting a two day
bounce off the recent lows and looking to head higher off the US jobs report
this morning, we can understand some longs throwing in the towel. It is a little
surprising that some investors were held in place by the Greenspan statements on
the US deficit.
SILVER
Like gold, the silver market remains in a
liquidation watch. The fact that the small spec and fund long remains at an
overbought level is the primary reason why silver is on the ropes. Another
reason why silver is vulnerable is that silver doesn’t have anything bullish
going on with respect to physical supply and demand.
PLATINUM
The platinum market appears to be building a
consolidation above $780 but until the market is assured of decent ongoing Asian
demand we don’t see prices rising up and away from the $780 to $800
consolidation pattern. Like the gold market, platinum does have the fundamentals
to suggest that the April low of $756 might be considered a deflated price.
COPPER
The overnight action in the copper market is
slightly weak with the market taking a slightly negative cue from the
international overnight action. The Asian trade did suggest that a strong Dollar
dampened interest in copper, but with the Dollar almost at the lowest level in a
month, we think the Asian trade is just uninterested in the market. Certainly
the copper market will be influenced by the US payroll readings today but at
this point we are having a difficult time deciding how copper could come away
from the report with a big bullish kick.
CRUDE COMPLEX
The energy complex once again showed signs of
being overbought in the action Thursday but has also managed to reject that
weakness a come into the action this morning firm. Certainly the Greenspan
comments about a slow down in China dampened sentiment for the long side of the
energy complex. The Iranian Oil Minister suggested that OPEC couldn’t afford to
derail high prices now, because a move to increase supply could exaggerate the
rebuilding that could still present itself in the second quarter.
NATURAL GAS
The natural gas market is certainly overbought and
vulnerable from a technical perspective. Furthermore, with weekly natural gas
inventories rising by 72 bcf and now standing 391 bcf above year ago levels
there is potentially a reason to see prices settle back away from the recent
highs. However, as long as the regular energy complex is strong the sellers
should be kept off balance in natural gas.